Forex Trading Fundamentals

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Forex, which stands for foreign exchange, refers to the selling and buying of a currency in exchange to another. It is the market which is greatly traded in the world. It is so because almost all can participate and the market is accessible even without having big capital. You are already part of the global forex market when you go on a trip and exchange your euros to US dollars.

At no definite time, the demand for a specific currency will either push it upwards or downwards in the price comparative to other currencies.

Here are several of the fundamentals regarding the forex market so you can begin forex trading.


Currency Pairs Primer

In the currency market, money is always traded in pairs. When you trade USD to EUR, there are two involved currencies, thus the exchange constantly shows how a currency is worth relative to the other. For instance, the price of EUR/USD allows you to know how much USD will it take to purchase one EUR.

The forex market makes use of symbols to label certain currency pairs. The US dollar has the symbol of USD, and the euro is EUR. Thus, the pair of US dollar and euro is symbolized as USD/EUR. Other currencies which are commonly traded include the British pound (GBP), Australian dollar (AUD), Vanadian dollar (CAD), New Zealand dollar (NZD), Swiss franc (CHF) and Japanese yen (JPY).

Each of the foreign exchange pairs has a market value accompanying it. The value talks about how much of the next currency will it take to purchase one unit of the first currency.

Market Pricing

Learning how to do forex trading includes knowing even a little of the new terms that describes the price of the pairs. The moment you understand it and know how to calculate your profit, you are a step closer to your first forex trade.

Several currency pairs move approximately 50 to 100 pips a day (occasionally, depending on the whole condition of the market). Pip is the acronym for point in percentage, which is the term used to designate the fourth decimal place in a pair, or the second when JPY is in the pair.

The profit that you can make on a trade is dependent on the amount of the currency you bought. If you purchased 1,000 units in US dollars, each pip costs 0.10 USD. Thus, you would compute your profit as (50 pips X $0.10), thus $5 USD for a gain of 50 pip. If you purchased a unit of $10,000, then each pip is priced at $1. So your profit will end up being $50. And if you purchased a 100,000 unit, each pip is amounting to $10, which makes your profit $500. The worth of each pip is called the pip value.

One of the best tips in learning to do forex is to see the price movements in actual time. You may also try to do some fake trades with a paper trading account so there are no real financial risks on your part. These basic concepts are important and will absolutely help you understand what is happening in the actual world of forex market.

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